Central bank enforces new CRR, SLR provisions

Banks and financial institutions in the country now have more funds to invest or extend as credit, as the changes in Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) introduced through the latest Monetary Policy came into effect from today. The latest monetary policy introduced by Nepal Rastra Bank (NRB) had slashed CRR to five per cent for commercial banks, 4.5 per cent for development banks and four per cent for finance companies to promote lending. Likewise, SLR has been reduced to 12 per cent for commercial banks, nine per cent for development banks and eight per cent for finance companies. Class ‘B’ and ‘C’ financial institutions that do not collect call deposits have to maintain SLR of six per cent. CRR refers to the portion of total deposits that financial institutions have to keep at central bank as deposit. SLR is the portion of total deposits that financial institutions have to maintain as liquid assets such as cash, government securities and precious metals. Reduction in SLR and CRR has freed some funds of banks and financial institutions for lending and investment. As for deprived sector lending, financial institutions can increase their exposure by 0.25 percentage point within mid-January 2014 and another 0.25 percentage point by the end of the current fiscal year to meet the central bank’s requirement, says an NRB circular issued on Sunday. The monetary policy has made it mandatory for commercial banks to extend amount equivalent to at least 4.5 per cent of total loans to the deprived sector. The ratio for development banks and finance companies stands at four per cent and 3.5 per cent, respectively. The same circular also extended the period for reverse repo and repo auctions to 21 days from existing 28 days. Moreover, it has also imposed new refinancing rate for priority sectors. Ordinary refinancing rate for productive sector loans such as hydro, agro, infrastructure and productive sector is fixed at five per cent for which banks can charge up to nine per cent interest. The rate for export refinancing has also been fixed at one per cent and financial institutions can charge up to 4.5 per cent. Likewise, NRB has fixed special refinancing rate for sick industries and SMEs, among others, at 1.5 per cent and has allowed banks to extend such loans at 4.5 per cent interest.